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Apple: Hyper-growth over, but hyper-cheap begins

An event guest plays with the new Apple iPad during an Apple Special Event in San Francisco on Jan. 27, 2010.

Justin Sullivan/Getty Images/Justin Sullivan/Getty Images

Bloomberg News (via Paul Kedrosky) has a chart and brief article about Apple Inc. , showing how its share price has been underperforming the S&P 500 since the company reported its fourth quarter results a month ago. Those results missed analyst expectations, due to disappointing iPhone and iPad sales in the fiscal fourth quarter, even as earnings leapt 54 per cent over last year.

The stock has since slumped about 10 per cent, and one observer quoted by Bloomberg – David Nelson, chief strategist at Belpointe Asset Management – believes the underperformance signifies that the company's days of hyper-growth are over. The thing is, Apple's share price in relation to earnings, or its price-to-earnings ratio, suggests almost no growth at all.

According to Bloomberg, Apple's P/E based on trailing 12-month earnings is just 13.6 right now – a valuation usually reserved for slow-growing utilities. Over the past five years, Apple's P/E has averaged 24 and was nearing a high of 50 at the end of 2007. As my colleague Simon Avery pointed out in October, the stock has traded below 14.5-times earnings only three times since 1997: during a short period following the return of Steve Jobs as chief executive of Apple, after the dot-com bubble burst in 2000 and during the financial crisis and bear market meltdown of 2008 and 2009.

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Is today just as dire? Hardly. According to Bloomberg's numbers based on average estimates among analysts, Apple's net income will rise 26 per cent this fiscal year, 15 per cent next year and 8 per cent in fiscal 2014. That's not hyper-growth, but the numbers do suggest that Apple shares are hyper-cheap.

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